Correlation Between Air China and Hubei Xingfa

Can any of the company-specific risk be diversified away by investing in both Air China and Hubei Xingfa at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Air China and Hubei Xingfa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air China Ltd and Hubei Xingfa Chemicals, you can compare the effects of market volatilities on Air China and Hubei Xingfa and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Air China with a short position of Hubei Xingfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Hubei Xingfa.

Diversification Opportunities for Air China and Hubei Xingfa

0.07

Correlation Coefficient

Air China  Hubei Xingfa

Significant diversification

The 3 months correlation between Air and Hubei is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and Air China is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Air China Ltd are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of Air China i.e., Air China and Hubei Xingfa go up and down completely randomly.

Pair Corralation between Air China and Hubei Xingfa

Assuming the 90 days trading horizon Air China Ltd is expected to under-perform the Hubei Xingfa. In addition to that, Air China is 1.43 times more volatile than Hubei Xingfa Chemicals. It trades about -0.44 of its total potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about -0.27 per unit of volatility. If you would invest  2,276  in Hubei Xingfa Chemicals on October 11, 2024 and sell it today you would lose (154.00) from holding Hubei Xingfa Chemicals or give up 6.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Air China Ltd  vs.  Hubei Xingfa Chemicals

Air China

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air China may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hubei Xingfa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Air China and Hubei Xingfa

The main advantage of trading using opposite Air China and Hubei Xingfa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, Hubei Xingfa can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hubei Xingfa will offset losses from the drop in Hubei Xingfa's long position.

The idea behind Air China Ltd and Hubei Xingfa Chemicals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.